When Dell acquired EMC almost two years ago, it inherited several components that didn't seem to mesh, much less compliment Dell's existing product portfolio. One of the most interesting, yet ironically peripheral to Dell's core business, is the Virtustream cloud service that EMC itself just bought a year earlier.
At the time, people wondered if the deal was EMC’s gambit to enter the public cloud market and take on AWS, which continues to siphon its enterprise storage business as customers move workloads off premise. That rationale was confusing because VMware, a far more significant part of the EMC corporate family, was already dabbling with its own ill-fated vCloud Air service.
The theory went that Virtustream, when paired with EMC's financial muscle and loyal customer base, had the technical foundation and entrepreneurial leadership to enter the mainstream public cloud battle. The assumptions underlying the conventional wisdom belied a severe misunderstanding of what Virtustream is all about.
Frustrated with answering the same questions over and over (including from me the first time we met), Virtustream co-founder and CEO Rodney Rogers made things abundantly clear last year in this blog post (my emphasis added):
When we set out to launch our business back in 2009, we didn’t seek to copy AWS. As entrepreneurs, we didn’t see too many examples of new IT companies that had been successful simply following the tail lights of a frontrunner on the industry’s racetrack. We knew the market needed something more and different than just was another general purpose cloud utility like AWS.
So we did something unique. We took a different track and made it our mission to become the leader in the market for running mission-critical applications in the cloud. While AWS focused on serving scale-out cloud native applications, we architected our cloud platform to solve a different engineering problem: to run scale-up, I/O-centric enterprise applications that require higher availability and security.
I fell into the trap that snares most technology analysts: assuming that because a technology is capable of something that it will inevitably be used for that thing. In the case of Virtustream, I saw an elegant multi-tenant server and storage virtualization stack that was more efficient and reliable than what AWS then offered and assumed that it would ultimately take on AWS in the on-demand, pay-by-the-hour IaaS market.
I missed the fact that Virtustream was overkill for most AWS uses (particularly in those early days of cloud adoption) like test/dev systems, Web or mobile apps with cloud-native backends and DR backup systems. Instead, Rogers and his team saw an empty racetrack, i.e. an untapped market for migrating traditional, mission-critical enterprise applications to a managed cloud service.
Virtustream overview: technology and services
Virtustream’s foundation is conceptually similar to other IaaS products with a virtualization platform that carves bare metal hardware into logical chunks. But instead of modeling VMs after traditional servers, Virtustream dices the hardware into what it calls a micro-VM.
μVMs are Lego-like blocks of cloud capacity that include minute amounts of compute, memory, storage I/O and network bandwidth that can be aggregated into any size needed for a particular workload. Using fine-grained μVMs that are individually inadequate to handle modern workloads helps Virtustream to maximize resource utilization by making it possible to precisely match resource allocation to workload requirements.
Think of it as a variant of the bin-packing problem in which using a large number of small cubes makes it easier to fill an arbitrary-sized container while minimizing empty space.
μVMs support the most commonly used hypervisors, namely VMware ESXi, KVM, IBM PowerVM and the open source version of Xen which can be combined in a single environment when needed to meet application requirements or to optimize the use of enterprise licenses. An organization’s pool of μVMs is typically divvied up between capacity used to operated shared overhead, such as an enterprise directory or customer database, and individual applications. The fine-grained nature of μVM-based resource allocation is paired with an equally granular pricing model in which usage is measured every five minutes and customers don’t pay for unused μVM capacity.
For Virtustream to be a credible platform for legacy enterprise applications it must provide guaranteed performance and reliability at least on par with the internal infrastructure it would be replacing. While μVMs are a solid technical foundation for predictable infrastructure, getting IT organizations to trust them requires SLAs with teeth, which Virtustream guarantees across the entire resource pool: compute, memory, storage, and networking. SLAs include up to 5-nines availability, IOP performance for virtual disks and up to 13-nines of data durability, i.e. long-term data availability and protection from corruption and bit-rot.
Vertical applications, use cases
The quintessential examples of the type of enterprise systems Virtustream targets are the SAP portfolio and similar mission-critical database applications from Microsoft, Oracle and others.
SAP is notable because Virtustream is an SAP certified partner that has completed more than 1,000 migrations of on-premise SAP implementations to its SAP cloud service, with at least 250 running production systems. These include many high-performance applications running SAP HANA and one or more of the S/4 HANA suite.
Virtustream claims that its μVM-based infrastructure uses hardware resources more efficiently, while the management automation of its cloud service reduces admin overhead 85 percent, human errors by 95 percent and system validation by 70 percent (see slide 35 in this overview presentation). For example, one of the early adopters of SAP on Virtustream, Domino Sugar found that its systems ran twice as fast, even as it expects a 40 percent reduction in three-year TCO.
Aside from serving as a general-purpose enterprise application platform, Virtustream is also addressing vertical markets, notably healthcare, and horizontal IT needs like risk management and compliance. The Virtustream Healthcare Cloud is a HIPPA-compliant service designed for EMR systems and related applications.
It recently integrated the service with SAP’s Health products to link EMR data with business intelligence software. Virtustream also just updated its enterprise risk management (EMR) SaaS product, Viewtrust (which it acquired in 2014), that continuously monitors IT systems for various cyber risks and compliance with significant regulatory frameworks like FISMA, SOX, PCI DSS, HIPAA, ISO 27001, FedRAMP and GDPR.
Blockchain services could be the next application Virtustream builds on top of its cloud infrastructure as a Dell exec tipped that the company is developing an as-a-service product.
Ironically, Virtustream remains a one-off to EMC's and now Dell's core business and one that the parent organization still doesn't quite know what to do with.
From the outside, it appears that Dell lets Rogers operate it as an independent subsidiary similar to the way Warren Buffett keeps his hands out of the operational business of companies he acquires. Granted, the Dell-EMC-VMware technical ecosystem has undoubtedly benefited from having Virtustream in the family through technology sharing and customer cross-references, but, like Pivotal, Virtustream is something of a Dell family oddball.
The Virtustream IaaS platform has carved a comfortable niche with lift-and-shift cloud deployments of mission-critical enterprise applications that steer it clear of direct competition with AWS and the other mega-clouds.
While Virtustream works elegantly for enterprise systems like SAP, it lacks the increasingly broad portfolio of platform, application and AI services that AWS, Azure and Google are using to woo developers. The result leaves organizations building cloud-native enterprise applications having to integrate legacy systems hosted on Virtustream with software running elsewhere and leaves it vulnerable to competition from the major players like AWS and Google which have already released compelling HANA services.
Likewise, as Virtustream expands into vertical and horizontal SaaS applications, it risks direct battles with AWS et al. but behemoths like IBM, Oracle, SAP and other traditional enterprise software vendors that have build cloud business services.
It will be interesting to see what Virtustream does with its Cloud Foundry service and whether Dell moves to position it as a general purpose cloud application platform. While it has a solid technical foundation to build upon, the gap in services, mindshare and customer base is probably too wide to effectively challenge the big three as a cloud-native platform.
Editor's note: this piece was written prior to Rodney Rogers' Twitter announcement that he was stepping down as CEO of Virtustream on May 7, 2018.